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Land asset ratio, what exactly is it? And does it even matter when you're growing your portfolio? In this episode, I'm going to unpack exactly what land asset ratio is and some common misconceptions you may have heard elsewhere when it comes to this metric and portfolio growth. Let's get into it. So what is land asset ratio?
To put it simple, it is the ratio between the value of your land and the total value of your property. Is it important? Well, it can matter, but it's not as important as some people may think. Let me give you some examples. In Sydney, there are hundreds of suburbs.
Here are four of them, Paddington, Glebe, Revsby, and Seven Hills. In Paddington, the typical residential land lots are just 100 to 150 square meters. In Glebe, slightly bigger, but still just 120 to 250 square meters. And then in Revsby and Seven Hills, the typical land sizes become 500 to 700 square meters. And over the past 10 years, how did they grow?
Well, the smaller land-sized suburbs, Paddington, it has grown by 104% in 10 years. Glebe has increased by 117% in 10 years. In comparison, the two suburbs with larger land sizes didn't grow that much. Revsby has grown by 89% in 10 years, while Seven Hills has grown by 90. 5%.
So in the long term, it doesn't matter where the suburb is or how large the land sizes are within the suburb. So in 10 years' time, the two smaller land-sized suburbs have outperformed. Then how about in the short term? Paddington, in the past year, house prices increased by only 8%, while Glebe has decreased by 14%. On the other hand, the two larger land-sized suburbs have grown better.
Revsby by 13%, while Seven Hills by 14%. So you see, it doesn't matter how large land sizes are within a suburb. It's all about market cycles. And in the really long term, all suburbs, all locations would perform similarly to each other. And now, let me give you some property examples and see when it comes to individual properties, if land sizes matter.
I've got two pairs of properties. One pair is in Brisbane and the other pair is in Melbourne. Now, the Brisbane pair. These two properties are both in the suburb of Wollstone. Property A is 94 Lamont Road.
It has four bedrooms, two bathrooms, two car spaces. It was sold once in 2021 for $1. 5 million and then resold in late 2024 for $2. 1 million. There's no significant renovation during that time.
And the total value growth was 40%. And now, property B, 47 Kedron Brook Road. Similarly, it has four bedrooms, two bathrooms, and one car space. And the land size is just half of property A's. It was sold once in 2021 as well for $840,000 and then resold in the beginning of 2025 for $1.
15 million. Again, no significant renovation over those four years. The total property value growth was 37%. Over four years' time, 3% value growth difference is neglectable. So we can confidently say that value growth of the two properties has been the same.
How about the pair in Melbourne? This time, land size difference is huge. One property's land size is more than seven times over the others. But the result, over very similar amount of time, the property value growth was 44% versus 40%. Again, over five years, that difference is neglectable.
So when would land asset ratio really matter? It only matters when it comes to extreme scenarios. For example, you're buying an apartment where land asset ratio is extremely small. In this scenario, I'm talking about one apartment in a high-rise building instead of a unit in a block of three. The other scenario could be a brand new building sitting on a tiny, tiny piece of land.
In that scenario, in the first few years of holding that property, the depreciation of your building will significantly impact your total property value growth. So now you know what land asset ratio is and have a better understanding of how it plays into portfolio growth. You can see it yourself in the examples I give. There's very slight differences, but not as much of a difference as some people may think there is. When you try to understand which asset to buy, knowing the land asset ratio is good, but it should not be your deciding factor.
There are so many more data points and metrics that contribute to growth. If you want to learn more about them, hit that subscribe button or follow us on iTunes or Spotify so you don't miss an episode. My name is Junge Ma, Lead Research Analyst at InvestorKit. I'll see you on another episode.
